RBI MPC MEETING

RBI MPC cuts repo rate for first time in 5 years: Governor Sanjay Malhotra administers a growth pill with 25 bps rate cut.

RBI MPC Meeting February 2025 Key Highlights & Outcomes:

Following are the highlights of the bi-monthly monetary policy announced by the Reserve Bank of India Governor Sanjay Malhotra on 7th February 2025:

  • Rate cut of 25 bps to 6.25% to boost growth.
  • GDP expected to grow at 6.7% in 2025-26, driven by consumption & investment.
  • Inflation projected at 4.2% for 2025-26, barring major shocks.
  • Global risks (geopolitics, trade policy, financial volatility) remain key concerns.
  • Neutral stance maintained to allow flexibility in response to changing conditions.
  • Other Adjustments: Standing Deposit Facility (SDF) rate: 6.00%
  • Marginal Standing Facility (MSF) rate & Bank Rate:50%

India’s Economic Growth (2024-25):

  • GDP Growth Estimate: 4% YoY, driven by private consumption recovery; (Quarterly estimates: Q1 – 6.7%, Q2 – 7.0%, Q3 & Q4 – 6.5% each)
  • Headline Inflation: Declined from 6.2% in Oct 2024 to lower levels in Nov-Dec 2024 due to falling food inflation

Projections for 2024-25:

  • CPI Inflation: 4.8% (Q4: 4.4%); Projections for 2025-26: CPI Inflation: 4.2%

Monetary Policy Committee (MPC) – RBI

  • Established: 2016 under the RBI Act, 1934 (Amended).
  • Objective: Formulate India’s monetary policy, primarily to control inflation and ensure economic stability.
  • Composition: 6 members
    • 3 from RBI (including the Governor as Chairperson).
    • 3 external experts nominated by the Government of India.
  • Decisions based on: Majority vote (Governor has a casting vote in case of a tie).
  • Mandate: Maintain inflation target of 4% (+/-2%) as per the Flexible Inflation Targeting (FIT) framework.
  • Meetings: Bi-monthly (every two months) to review key rates (Repo Rate, SDF, MSF, etc.).
  • Significance: Ensures transparency & accountability in monetary policy decisions.

Key Terms

1. Bi-Monthly Monetary Policy

  • Announced every two months by the RBI’s Monetary Policy Committee (MPC).
  • Aims to control inflation, stabilize currency, and promote growth.
  • Includes decisions on Repo Rate, Reverse Repo Rate, SDF, MSF, and Bank Rate.

2. Gross Domestic Product (GDP)

  • Total monetary value of all final goods & services produced within a country.
  • Measured in Real GDP (inflation-adjusted) and Nominal GDP (current prices).
  • Indicates economic growth and development.

3. Standing Deposit Facility (SDF) Rate

  • Introduced in April 2022 by RBI.
  • Floor rate for liquidity absorption without collateral.
  • Helps in controlling excess liquidity in the banking system.

4. Marginal Standing Facility (MSF) Rate

  • Emergency borrowing window for banks from RBI against Statutory Liquidity Ratio (SLR) securities.
  • Higher than the Repo Rate to discourage frequent borrowing.
  • Helps banks meet short-term liquidity mismatches.

5. Bank Rate

  • Rate at which RBI lends to commercial banks without collateral.
  • Generally aligned with the MSF Rate.
  • Affects loan interest rates & overall credit availability.

6. Inflation

  • Sustained increase in the general price level of goods & services.
  • Measured by Consumer Price Index (CPI) & Wholesale Price Index (WPI).

RBI uses monetary policy tools (Repo Rate, SDF, etc.) to control inflation.

Leave a Reply